How can you justify the riches of internet radio?

I want to see you justify the riches of internet radio concerning this matter -

Excerpt -

This offers the first public look at the company's finances -- and Pandora isn't yet profitable. The popular site posted a net loss of $328,000 on revenue of $90.1 million in the first nine months of its most recent fiscal year. In the fiscal year ended Jan. 31, 2010, it lost $16.8 million on sales of $55.2 million.

Its biggest expense is the royalties it pays for the music it streams. As Pandora's audience grows, so do those costs, which reached $45.4 million in the first nine months of 2010. That is twice what Pandora spent on them in the same period a year earlier.

Now we all know per song royalty rates are going up every year and we also know that they will have to be renegotiated in 2015.

But besides royalty and streaming costs, if Pandora isn't making money with 80 million registered users how will they make money when everybody and their grandmother is putting out personalized radio apps on smartphones in the next few years including competition from Sirius with 2.0?

You keep posting that internet radio is where Sirius should concentrate in order to grow its business and make the big bucks, when internet radio hasn't made money ever, even for Pandora with 80 million registered users.

Thanks.

PS - I do believe Pandora is strategically IPOing before Sirius XM 2.0 comes out and effects their business negatively.

Our total revenue has grown from $14.3 million in fiscal 2008 to $55.2 million in fiscal 2010 and $90.1 million in the nine months ended October 31, 2010. At the same time, our total cost and expenses have grown from $29.0 million in fiscal 2008 to $70.6 million in fiscal 2010 and $89.3 million in the nine months ended October 31, 2010, principally as a result of the growth in content acquisition expenses. As the volume of music we stream to listeners increases, our content acquisition expense will also increase, regardless of whether we are able to generate more revenue. In addition, we expect to invest heavily in our operations to support anticipated future growth and public company reporting and compliance obligations. As a result of these factors, we expect to continue to incur operating losses on an annual basis through at least the end of fiscal 2012.

And this -

Given the royalty structures in effect with respect to content acquisition, our content acquisition costs increase with each additional listener hour. As such, our ability to achieve operating leverage depends on our ability to increase our revenue per hour of streaming through increased advertising sales.

As our mobile listenership increases, we face new challenges for establishing a robust advertising model optimized for connected devices. The mobile advertising market is nascent and faces technical challenges due to fragmented platforms and lack of standard audience measurement protocols.

In addition, we expect to increase the number of audio ad campaigns for both traditional computer-based and mobile platforms, placing us in more direct competition with broadcast radio for advertiser spending, and these advertisers predominantly focus on local advertising. By contrast, display advertisers have been predominantly national brands. Our success selling audio ads in large part may require us to convince a substantial base of local advertisers of the benefits of advertising on the Pandora service.

I won't take up anymore of your time Spencer. You know how much I have completely disagreed with you on your internet radio thesis because of the standalone free business model. I don't believe it works, and for some reason you love it. I don't know why. In my opinion its a terrible business model. Take care and good luck to you in all you do.

I see you posted you must have missed this from the S-1
In addition, we expect to invest heavily in our operations to support anticipated future growth and public company reporting and compliance obligations. As a result of these factors, we expect to continue to incur operating losses on an annual basis through at least the end of fiscal 2012.

Our revenue increased rapidly in each of the fiscal years ended January 31, 2007 through January 31, 2010; however, we expect our revenue growth rate to decline in the future as a result of a variety of factors, including increased competition and the maturation of our business, and we cannot assure you that our revenue will continue to grow or will not decline. You should not consider our historical revenue growth or operating expenses as indicative of our future performance. If our revenue growth rate declines or our operating expenses exceed our expectations, our financial performance will be adversely affected. Further, if our future growth and operating performance fail to meet investor or analyst expectations, it could have a materially negative effect on our stock price.

You will always love internet radio Spencer. I know that. If Sirius pushes it as hard as you want them to their margins will drop, and their expenses will rise with each additional internet listener. Thus it will kill the stock. It's just a bad bad business model which you still refuse to acknowledge. And I won't change your mind.

1994 - Internet radio began. 2011 - a million internet radio stations. Still nobody's making money. What a lousy business you love.

If you have a personal question for someone, try shooting them an email or a PM.

If you want to solicit the thoughts of the entire community, write an title appropriately and ask everyone.

Thanks.

Not a problem Charles. The thesis is what I am after. Spencer is not a stupid guy, and even though his love of the internet radio model is beyond anyone I have ever encountered, he has to begin questioning his own thesis now. Pandora's S-1 speaks volumes. Quite honestly I wonder if any writer in the radio industry will push the internet radio business model ever again. Not just Spencer.

1. For a guy who loves the internet radio industry (I assume you mean Pandora and the likes) he sure does spend a lot of time writing about Sirius XM radio on his satellite radio website. As far as I know, he doesn't love Pandora or the likes, he listens to SiriusXM the majority of the time.

2. For the record, SiriusXM is in the internet radio industry. I listen exclusively to the internet feed 6-8 hours per day (I no longer pay for a regular sub). I don't even know if SiriusXM will be using satellites in 20 years. If you hate internet radio, you are hating SiriusXM.

The only issue with "internet radio" is the profitability and the model. If Pandora goes to a paying model (they probably will), then they are in the same boat as SiriusXM (minus the exclusive content).

These two companies are not as different as people make them out to be and in 10 years (if they both survive) they will probably be damn near identical in terms of model and delivery.

My question to the SiriusXM fans is... If you truly believe that Pandora is in NOW WAY a threat, why even bother discussing it? Just ignore them and move on. I wouldn't be talking about it in the forums if it wasn't for you guys.

The forums have 1/10th the traffic they use to and 10x more articles about Pandora.

For the record, SiriusXM is in the internet radio industry. I listen exclusively to the internet feed 6-8 hours per day (I no longer pay for a regular sub). I don't even know if SiriusXM will be using satellites in 20 years. If you hate internet radio, you are hating SiriusXM.

The only issue with "internet radio" is the profitability and the model. If Pandora goes to a paying model (they probably will), then they are in the same boat as SiriusXM (minus the exclusive content).

Cheers.

Sirius primarily uses the internet as a churn reducer and ARPU enhancer for it regular sat subs. It is not its main business and it was not designed to be as Mel has mentioned many times on the earnings calls.. Sat radio is the main business, and the model is quite different.

Basically costs go way up with increased usage of internet radio ( streaming and royalty costs). Much of Sirius costs are primarily fixed. These fixed costs stay the same no matter how long a person listens or whether Sirius has 20 million 30 million or even 50 millions subs. Beauty of fixed costs vs. variable. Quite a different business model in the 2 radio delivery systems.

Sirius primarily uses the internet as a churn reducer and ARPU enhancer for it regular sat subs. It is not its main business and it was not designed to be as Mel has mentioned many times on the earnings calls. Sat radio is the main business, and the model is quite different.

That may be true today. That said, satellites are expensive.

Regardless of how Mel envisions his product, I use it only via internet. I'm obviously the minority but, I'm not the only one.

Originally Posted by MUSCLE13

Basically costs go way up with increased usage of internet radio ( streaming and royalty costs). Much of Sirius costs are primarily fixed. These fixed costs stay the same no matter how long a person listens or whether Sirius has 20 million 30 million or even 50 millions subs. Beauty of fixed costs vs. variable. Quite a different business model in the 2 radio delivery systems.

I am aware that internet streaming is more expensive but, is it more expensive than satellites? I honestly don't know but, at hundreds of millions per whack, one could assume it could be cheaper to renegotiate an RIAA deal for streaming like Pandora did.

I dont know what the future is for SiriusXM but, it certainly isn't clunky hardware rattling around in peoples cars. There are 4 vehicles at my house and 3 of them have crap rattling around in them and scratches from magnetic antennas. That is not radio at its finest.

Regardless of how Mel envisions his product, I use it only via internet. I'm obviously the minority but, I'm not the only one.

My wife as well has an internet only subscription. There is no doubt more and more people are going that route. But contrary to what you and Spencer think, that doesn't make the internet model more profitable. The expenses are outrageous. More listening higher expenses. Thats why Sirius is always cutting off the internet player after a certain time limit and you have to log in again. More people streaming more expenses. There is also the factor of unlimited competition on the internet. It happened on PC's in the 90s and its happening on smartphone apps now. No barrier to entry for internet radio. That is extremely difficult to build a real media business model around an industry like that. There will be hundreds of thousands of net radio apps just like there are hundreds of thousands or a million stations online now. The internet radio audience eventually will fragment as more and more apps become available - paid or unpaid.

Originally Posted by SiriusBuzz

I am aware that internet streaming is more expensive but, is it more expensive than satellites? I honestly don't know but, at hundreds of millions per whack, one could assume it could be cheaper to renegotiate an RIAA deal for streaming like Pandora did.

I dont know what the future is for SiriusXM but, it certainly isn't clunky hardware rattling around in peoples cars. There are 4 vehicles at my house and 3 of them have crap rattling around in them and scratches from magnetic antennas. That is not radio at its finest.

Satellite costs are fixed. The longer you listen, doesn't effect the costs. The more people listening, doesn't effect the costs. After this year I don't believe Sirius launches a sat again until 2020 or so. I have to check. The FCF is going to be tremendous just because of that fact.

Mel has to figure out a way to make sat and internet both work for Sirius. I have confidence he will. He seems to be using the internet to get or retain more sat subs which I love. But he has to expand the margins on internet subs as well. No easy task at all. Its a bad business. Perhaps including Amazon and iTunes is a hint of a way to expand revenue. I'm not sure its enough. There has to be more to it I believe. But I'm not Mel.

The RIAA negotiations that Pandora and all of internet radio faces in 2015 are a real uncertainty. It seem that the trend is higher royalty costs every year. Streaming and royalty costs are absolutely brutalizing the free model and the paid model as well. So will no barrier to entry.